Read This Before Buying Suido Kiko Kaisha, Ltd. (TYO:6403) For Its Dividend

Today we'll take a closer look at Suido Kiko Kaisha, Ltd. (TYO:6403) from a dividend investor's perspective. Owning a strong business and reinvesting the dividends is widely seen as an attractive way of growing your wealth. Yet sometimes, investors buy a popular dividend stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.

While Suido Kiko Kaisha's 2.6% dividend yield is not the highest, we think its lengthy payment history is quite interesting. Some simple research can reduce the risk of buying Suido Kiko Kaisha for its dividend - read on to learn more.

Explore this interactive chart for our latest analysis on Suido Kiko Kaisha!

Payout ratios

Dividends are usually paid out of company earnings. If a company is paying more than it earns, then the dividend might become unsustainable - hardly an ideal situation. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. While Suido Kiko Kaisha pays a dividend, it reported a loss over the last year. When a company recently reported a loss, we should investigate if its cash flows covered the dividend.

Last year, Suido Kiko Kaisha paid a dividend while reporting negative free cash flow. While there may be an explanation, we think this behaviour is generally not sustainable.

While the above analysis focuses on dividends relative to a company's earnings, we do note Suido Kiko Kaisha's strong net cash position, which will let it pay larger dividends for a time, should it choose.

We update our data on Suido Kiko Kaisha every 24 hours, so you can always get our latest analysis of its financial health, here.

Dividend Volatility

From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. For the purpose of this article, we only scrutinise the last decade of Suido Kiko Kaisha's dividend payments. During this period the dividend has been stable, which could imply the business could have relatively consistent earnings power. During the past 10-year period, the first annual payment was JP¥12.5 in 2011, compared to JP¥55.0 last year. This works out to be a compound annual growth rate (CAGR) of approximately 16% a year over that time.

Dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

Dividend Growth Potential

Dividend payments have been consistent over the past few years, but we should always check if earnings per share (EPS) are growing, as this will help maintain the purchasing power of the dividend. Suido Kiko Kaisha's EPS have fallen by approximately 58% per year during the past five years. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and Suido Kiko Kaisha's earnings per share, which support the dividend, have been anything but stable.

Conclusion

To summarise, shareholders should always check that Suido Kiko Kaisha's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. We're a bit uncomfortable with Suido Kiko Kaisha paying a dividend while loss-making, especially since the dividend was also not well covered by free cash flow. It's not great to see earnings per share shrinking. The dividends have been relatively consistent, but we wonder for how much longer this will be true. There are a few too many issues for us to get comfortable with Suido Kiko Kaisha from a dividend perspective. Businesses can change, but we would struggle to identify why an investor should rely on this stock for their income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 3 warning signs for Suido Kiko Kaisha (1 can't be ignored!) that you should be aware of before investing.

Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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